Rio Tinto scraps plans to sell off diamond unit

 
Suzie Neuwirth
FTSE 100-listed mining giant Rio Tinto yesterday announced that it has decided to retain its diamonds business, ending months of speculation regarding a potential sale or flotation.

Rio Tinto’s diamonds & minerals chief executive Alan Davies said that the firm chose to retain the unit due to the “robust” medium- to long-term outlook for the diamond industry, fuelled by growing demand in Asia.

“After considering a number of alternative strategic ownership options it is clear the best path to generate maximum value for our shareholders is to retain these businesses,” he said.

Rio has been looking to divest a number of non-core assets to streamline the business during an industry downturn. Chief executive Sam Walsh is targeting savings of over $5bn (£3.3bn) by the end of 2014.

Analysts have suggested that Rio struggled to find a buyer at the price it wanted so has opted to retain the diamond unit. Rio tried to sell the loss-making asset last year, shortly after rival BHP Billiton put its diamonds arm on the block, but BHP won the race to find a buyer, selling to Harry Winston last November.

“Recent speculation suggested an IPO, but the price touted around of $1.3bn incorporated an expectation that diamond prices would rise substantially, so I thought it would be a stretch,” Richard Knights, analyst at Liberum Capital, told City A.M. “Also [diamond miner] Alrosa is planning an IPO later this year so I don’t think there would be enough demand in the market.”

Rio Tinto shares closed 3.4 per cent down at 2,582p yesterday.